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What Fringe Benefits Am I Paying Taxes On? 
 
by kmhagen July 22, 2005

Educational Assistance

You can exclude up to $5,250 of qualified educational assistance payments provided by your employer, for undergraduate or graduate level studies. In order to qualify, the program must meet the following tests:

  • Rules for qualifying for educational assistance do not favor highly compensated employees.
  • Not more than 5% of the program’s benefits during the year are for shareholders or owners.
  • The program does not allow employees to choose cash or other taxable benefits instead of educational assistance.
  • The employer gives notice of the program to all eligible employees.

The program can cover current employees, former employees if the benefit is based on their employment, leased employees who have performed substantially full-time services for at least one year, yourself (if you are a sole proprietor), and partners, in the case of a partnership.

Highly compensated employees, for purposes of the educational assistance program tests, are defined the same as for dependent care benefits programs.

Employee Discounts

If your employer sells you property or services at a discount, you may be able to exclude the discount from your income. The discounts must be on property or services your employer sells to customers in the ordinary course of the line of business.

Excludible discounts apply to current employees, former employees, widows and widowers of former employees, leased employees, and partners who perform services for a partnership.

There are limits on the amount of discounts that can be excluded from income:

  • Discounts on services cannot be more than 20% of the amount charged to regular customers.
  • Discounts on merchandise or property cannot be more than the business’s gross profit percentage on the price normally charged to regular customers.

Discounts are not excludible if they are granted only to highly compensated employees, and not to all employees or to a group of employees defined according to a reasonable classification that does not favor highly compensated employees. Highly compensated employees, for purposes of the employee discount, are defined the same as for the educational assistance program tests, and the dependent care benefits programs.

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